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UK bulk annuity market spikes with Prudential, Northern Bank deal

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The Northern Bank Pension Scheme has secured a £680m (€932m) bulk annuity buy-in with Prudential as the insurer enters the 2015 market with the largest deal thus far.

The £1.25bn pension fund secured the buy-in insurance contract to cover the majority of its pensioner members and dependants.

Prudential’s win marginally surpasses the £675m deal stuck between Rothesay Life and the UK Lehman Brothers Pension Scheme last month to become the largest transaction of the year.

Northern Bank provides retail banking services in Northern Ireland under the trading name of Danske Bank, and its closed defined benefit (DB) scheme supports around 5,000 members, 2,000 of which have just been insured.

This is Prudential’s first deal in 2015, after writing £1.7bn in 2014 to become the third-largest player behind Legal & General (L&G) and Pension Insurance Corporation (PIC).

The insurer, known for flirting with the UK bulk annuity market with sporadic business, said earlier this year it would continue to operate with discipline and very selectively, and that its strategy was working well.

Andy Reed, director of DB solutions at Prudential, said the insurer had good aspirations in 2015 but stressed it had to be on the right terms.

“We do not have a limit or target [for 2015], but it is more about if the opportunity is good for us at that given point in time,” he said.

“We like the market, but we write business as it suits us. We’re not in the £3bn-4bn range, and this size of transaction is very suitable.”

Reed also said the individual annuities business arm of Prudential, one of the UK’s largest providers, was not influencing the bulk annuity business strategy.

The pension scheme and sponsor were advised by consultancy LCP in the latest deal.

LCP said the deal was a spike in bulk annuity business in Q2 compared with Q1, joining Lehmans and one other £500m-plus deal.

LCP partner Michelle Wright said the deal was also arranged to allow additional annuity policies to be added at a later date on agreed terms.

The first quarter of 2015 was dominated by L&G, which wrote £644m, but Prudential and Rothesay Life have now stamped claims on Q2 with larger deals.

This year’s reported business for Q1 and announcements in Q2 still lag behind levels seen in 2014, a record year for the UK market.

Market participants insured more than £4bn of liabilities by April 2014, compared with £804m this year.

By the end of Q2 last year, insurers reached a total of £6.9bn, a feat unlikely to be reached even with the deals announced by Prudential and Rothesay Life.

Wright said, despite the 2015 market’s starting in a lumpy fashion, business levels were picking up, with strong demand from UK pension schemes.

“[Last year] was characterised by large transactions [ICI (£3.6bn), TRW (£2.5bn) and Total (£1.6bn)], and this year it seemed to be a slower start,” she said. “But activity is picking up.”

The record £12bn of deals in 2014 was expected to entice several other insurance companies into the market, particularly after the UK government changed defined contribution (DC) regulations that spelt a reduction in the size of the individual annuity market.

UK insurer Scottish Widows announced its intention to enter the bulk space by the third quarter of 2015, a move LCP said would bring “welcomed capacity” to the market and lead to further competitive pricing.

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